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To decrease the additional financing needed to support an increase in sales, management can: a. decrease...

To decrease the additional financing needed to support an increase in sales, management can:

a. decrease notes payable

b. retire common stock

c. increase the dividend payout

d. cut dividends

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Homework Answers

Answer #1

The right answer choice is “(D). Cut Dividends”

To decrease the additional financing needed to support an increase in sales, management can cut dividends for the year.

The Additional Funds Needed [AFN] for the coming year Is calculated by using the following formula

The Additional Funds Needed [AFN] = Increase in Total Assets – Increase in in Spontaneous liabilities – Additions to retained earnings

Therefore, if the management cuts the dividends for the year, then the Additions to retained earnings will be higher and it’ll results in decrease in the additional financing needed to support an increase in sales.

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